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Comment of Vladimir Potapov, Global Head of Portfolio Management Business at VTB Capital Investment Management to Business New Europe


Tags: portfolio management

Sep 6, 2012
FUND SURVEY 2012: Beware of Greeks, but bonds are fine

Russian equities lost 18.3% for the period in local currency measured by the performance of the Micex Index. We think the result was driven by increased global risk aversion due to the unfolding European debt crisis and lack of appetite for emerging markets in general from global investors.

Vladimir Potapov, Global Head of Portfolio Management Business at VTB Capital Investment Management:
Russian equities lost 18.3% for the period in local currency measured by the performance of the Micex Index. We think the result was driven by increased global risk aversion due to the unfolding European debt crisis and lack of appetite for emerging markets in general from global investors. Local factors such as pre-election uncertainty and lack of visible progress with structural reforms also made some contribution to the decline.
Only five out of 30 Micex Index members managed to show a positive return for the period. Dividend stories looked far better than the market on average as investors sought the relative safety of tangible cash flows and support from yields during turbulent times. Surgutneftegas preferred shares gained almost 32% underpinned by 10%+ yield based on 2011 results. MTS local shares were down 2.5%, but the 7% yield helped to make the stock’s total return decisively positive. Russian oil and gas stocks were core outperformers thanks to their attractive dividend yields and relative defensiveness of earnings stream compared to other sectors present on the Russian stock market.

At the same time high-beta, low-quality, less liquid names went through a heavy sell-off. Steel and coal names lost 50-70% for the period on the back of multiples reverting to cycle averages and earnings expectations coming back to earth. Electric utilities were among underperformers due to a protracted period of regulatory uncertainty stemming from preelection pressure on tariffs. Federal Grid Company’s shares lost 49%, while RusHydro lost 41% for the period.

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